Citigroup is raising their 3Q07 estimates for Intel above consensus, reflecting the well-publicized strength in PC markets. Their confidence is heightened by evidence from other component vendors that mix is shifting to the high-end, favoring Intel in both market share and product margin. Citi's 3Q07 revenue/EPS estimate is now $9.41B/$0.29 (from $9.3B/$0.27) versus consensus $9.36B/$0.28.
Firm notes they are further encouraged by 3 factors, all under Intel's control, that bode well for Intel's longer-term earnings and form the crux of this note:
• Pricing is Firm. Beyond a long-planned reduction in Santa Rosa pricing in September, firm's fieldwork suggests Intel's pricing curve through 4Q07 remains remarkably firm, with no planned price cuts in desktop or server. They have higher confidence in Intel's ability to improve gross margin in coming quarters, particularly helped by falling blended die sizes they see in 2008.
• Out Executing the Competition. Intel continues to be on or ahead of its planned product roadmaps, in stark contrast to AMD who has been indeed late with its Barcelona product launch. Firm's fieldwork also shows that Intel has pulled forward some elements of its quad-core server roadmap (QC5200) and has confirmed launch of its Montevina notebook processor for 2Q08 at 25W standard voltage.
• Buyback Is Ramping. Recent fieldwork suggests Intel is currently buying back at 4x the 2Q07 run rate (2Q07 was a notably low base), providing first evidence that a longer-term buyback inflection is forthcoming, paralleling Intel's cash flow.
INTC remains Citi's Top Pick and they see 21% upside to their $31 target price.
Banc of America notes that based on their channel checks, recent industry data and supply chain commentary, they are raising their Sept. qtr est. for Intel above the high end of guidance ($9.0-9.6b). BAC's new Sept. est. is now for $9.65b (+11.2%), up from $9.41b previously and ahead of consensus ($9.36b, +7.8%). Firm's revised Q3 GAAP EPS est. now stands at $0.31 (Street at $0.28), while their CY08 est. of $1.51 is now $0.14 ahead of consensus. Checks suggest above seasonal demand in PCs, with particular strength for notebooks, which is supported by various datapoints from PC OEMs and suppliers. Further, the July SIA data for MPUs also points to a strong start for MPUs, with sales up 7.6% on a 3-mo moving avg. basis, well above the 10-yr avg. of +1.8%, and ASPs up 3.6% M/M (vs. normal seasonality of flat). They believe the improvement in ASPs reflects higher shipments for Intel into the notebook segment, fueled by the launch of the new Santa Rosa platform and higher uptake of Conroe.
Reiterates Buy with price target upped to $31 from $29.
Notablecalls: While the stock was strong on Friday on heels of Dell's good quarter, I expect it to challenge 52-week highs following these two calls. The comments on pricing and the company buying back stock hand over fist make INTC an Actionable Buy here!
I expect at least part of the move to happen in the pre market, so be early.